Big Business Moves Beyond Carbon Uncertainty

Uncertainty around the introduction of a carbon pricing mechanism in Australia has resulted in most companies doing little to reduce their environmental impact.

But not at the big end of town.

Our parliament may be descending into confusion but a clear policy is emerging from the corporate world. Major companies are taking decisive steps to manage and mitigate their potential carbon risk. You may not hear about the activities but they are happening and they will effect every business in the country.

Corporate leaders are governed by one simple expectation; shareholders demand returns on their investment. To achieve an acceptable return, executive teams follow a few simple rules; one of which is that every dollar spent in the business must contribute to the overall profit of the business. This is not an oversimplification; even the cost of regulatory compliance contributes to profit because it is part of the company's licence to operate. Without a licence to operate, there is no business and therefore no profits.

So why aren't more corporations marketing their green credentials? Some aren't ready yet, and some are waiting for the right time. We need to remember that any government regulation becomes the minimum requirement; a carbon pricing mechanism, tax or market based, becomes the maximum cost. The competitive advantage is won by the business that goes beyond compliance and sets the industry standard. That business will also gain a cost advantage due to relatively low carbon emissions.

In fact, we are already experiencing a kind of carbon pricing. The costs incurred by large corporations in managing and reducing their carbon emissions must be passed on to the customer in order to maintain margins and shareholder return. However, most models that rely on continuous, beyond normative, price increases are not sustainable, so the corporate will look to turn cost into investment, with returns in the form of efficiency gains and/or improved revenue.

Increased revenue will result from strong marketing and brand positioning. Customers will be encouraged (heavily influenced in some cases) to change their behaviours and attitudes towards the environment thus increasing demand for "greener" products/brands.

The political confusion around carbon pricing is providing executive teams a handy screen behind which they can work to improve their environmental performance. They may share our confusion as to the structure of the predicted carbon pricing mechanism, but they have left uncertainty behind in determining their market position. They're just not that vocal about it yet.

R&D Tax Concessions

Each year billions of dollars in business grants and other funding programmes are available from Australian governments. These funding opportunities are for business activities such as business expansion, research and development, innovation and export.

I am continually finding that while many companies are endeavouring to improve their operations and products, few are taking advantage of their R&D tax entitlement.

In my experience there are two main reasons for this: Firstly, many companies do not recognise the sometimes inherent nature of ther R&D efforts and expenditure; and secondly, the complexity of eligibility and the application process.

R&D, to some degree, is part of business and is often driven by change within a market/industry or from a conscious strategy to:

• Gain competitive advantage
• Develop more efficient systems and processes
• Improve the company's sustainability performance

Whatever the impetus for improvement, it is a good idea to talk to an expert in R&D Tax Concessions in order to prepare and take advantage of our government's generosity.

The following link will take you to a recent article that looks at the Federal Government's R&D Tax Concession initiative in its current structure and proposed changes for 2011.

R and D Tax Concessions: Current and Future

Sustainability - The Winning Strategy

Many business managers are finding it hard to embrace sustainability; they see the actions being taken in their business as having little impact. In other words; the results do not justify the effort.

The disconnect between effort and results can often be traced to the "scatter gun" approach adopted by many organisations. Lack of structured planning leads to a series of discrete activities, unlikely to be given project status and not taken seriously in the broader business context.

I am continually hearing comments like:

"We changed our lighting to more energy efficient bulbs but we haven't saved that much on electricity; the cost just keeps going up."

"We have bins for the different types of rubbish of course; most staff are pretty good with it. But you try and get a supplier to take their packaging back!"

The companies that are developing a sustainability strategy on the other hand, and integrating it throughout their business, are reaping substantial rewards.

Over the last ten years, a prominent 5 star hotel south of Sydney has experienced significant cost reductions through strategies that:

• Reduced energy consumption by 22%
• Reduced water consumption by 53%
• Reduced waste to land fill by 46%

In the year 2008/09, a small to medium sized manufacturer has:

• Reduced electricity consumption by 10%
• Reduced LPG use by 15%
• Reduced paint materials (a substantial part of their process) by 34%
• Reduced motor vehicle running costs by 4%

In seven years of incorporating sustainability as an integral part of their strategy, this manufacturer has also increased sales revenue and profit margins; increased productivity by 100%; reduced inventory by 30% and; established and consolidated new markets.

Supported by strong, top-down commitment from the executive teams, these companies have embedded sustainability into their culture and all relevant aspects of their operations. Their sustainability approach is providing a winning strategy as they create new sources of advantage and deliver measurable business results.

Reality Drives Sustainability

The movement towards sustainability in big business is not being driven by environmentalists, nor is it being driven by political agenda. There are more encompassing global realities to thank.

• Climate Change - The growing concentrations of greenhouse gasses in the atmosphere and the fear of what the effect will be on the planet has led to an increase in regulations being proposed, and in some cases enacted, to limit and put a cost on carbon emissions.
• Competition for Resources - Population growth and the rise in living standards in emerging economies will generate higher demand for goods and services resulting in unprecedented demand for natural resources. As resources become scarce and competition for what is available increases, we risk conflict as populations struggle to meet basic needs.
• Communications - The advent and proliferation of social media has not only made it easy for people to connect across the globe, it has created a very efficient means to disseminate information and opinion. People can easily track and report on a company's environmental performance and destroy the reputations of those found lacking.
• Globalisation - National economies are being integrated into one global economy and many companies are operating across a number of borders and social/environmental standards. However, minimum international standards are emerging as key stakeholder requirements eclipse the locally enforced standards.

Whatever the drivers, the value to the planet is substantial. Innovative ways are being found to meet our growing needs while reducing our impact on the environment. Our efforts are slow and the roadblocks are many and resilient, but big business is embracing sustainability at an ever increasing rate. And where big companies lead, smart businesses follow.

What's To Learn

Milton Friedman said, "The business of business is business" and essentially he was correct. You may not agree with some of his beliefs but those six words remind us of the commonality of all businesses.

When it comes to large versus small business, they do at least have one thing in common; both have a reluctance to learn from the other.

Executives from large companies need to understand that the real innovators are SMEs. They have to create and adapt to survive; if they don't, corporations will rumble them. Consider how quickly and based on how little information good decisions are made and acted on in the SME sector. Look at their margins in the absence of substantial economies of scale.

SME owners and managers need to understand that corporations are made up of people trying to make a living; just like them. Except some of those people have substantial resources to call on and can often afford to make mistakes that would cripple a typical SME. Smart managers monitor what the giants are doing but do not try to emulate them; rather they apply the learnings that are relevant to their businesses.

The best ways to monitor company policy and activity:

• Attend seminars that have speakers from the corporate or SME sectors
• Read newspaper business sections
• Watch business programmes
• Join your industry association and take part

Most importantly; listen, read, watch and think.

Business Sustainability - The Holistic View For Your Business

I often get confused when I see the words "Business Sustainability" written in an article. Is the author referring to businesses in general or to each business individually?

Mostly I find that Business Sustainability is referred to in the context of either environmental sustainability, social responsibility, ethical behaviour or economic impact. And while all these issues are good and correct and doing the right thing etc. they seem to miss the very important reality faced by every owner, executive and manager on a daily basis; keeping the business going.

After all, to have a sustainable business, you must have a business to sustain.

I support the triple bottom line approach of creating a positive environmental, social and economic impact that ensures a sustainable future for generations to come. What I do not support is the pressure being put on business to adopt "sustainable practices" and adopt them now; don't think just do.

In Australia, all levels of government are doing their best to force change; major corporations are pressuring their supply chains to comply with their environmental imperatives; environmental and social groups are playing the guilt/evil card. And on the other side, we have sceptics telling us that it is all a load of rubbish.

This is not rubbish however:

1. Resources are finite
2. Attitudes and laws are evolving
3. Every business needs to change

If you accept these three simple points, the only question a business has to ask is; what do we change and when? If you want a meaningful answer, start by looking at the question in terms of the holistic view of the business.

To me, business sustainability is about addressing the short term challenges while planning the achievement of long term ambitions. In other words, it is about living in the real world of today while making sure your business survives and thrives into the future. It is about taking a long term view and taking steps to get there.

A holistic view of business relates to how each area and decision is seen in the context of every other area and decision as well as in the context of the long term ambitions. A holistic view of the business also accepts that environmental, social and ethical considerations are part of the business.

What business owners and managers must not do is think that they have to change overnight. This kind of reactionism will harm the business as much as non action.

Start by looking at the business through a more holistic lens taking environmental, social and ethical issues into account. Understand the need for compliance, the activities and requirements of your customers and suppliers and the attitudes (and potential contribution) of your staff.

Plan, over time, to incorporate sustainable practices into the business in a practical way and soon the idea of business sustainability will become the way you do business.

And the real benefit of that paradigm; staff, customer and supplier engaged in continuous improvement. If that's not a recipe for a sustainable business I don't know what is.